GasLog Partners LP
Q2 2021 Earnings Call Transcript

Published: 27 Jul 2021

[Operator:]

Good morning, my name is Liz, and I will be your conference operator today. At this time, I would like to welcome everyone to the GasLog Partners Second Quarter 2021 Results Conference Call. As a reminder, this conference call is being recorded. On today's call are Paul Wogan, Chief Executive Officer; Paolo Enoizi, Chief Operating Officer; and Achilleas Tasioulas, Chief Financial Officer. Joseph Nelson, Head of Investor Relations will begin your conference.

[Joseph Nelson:]

Good morning or good afternoon, and thank you for joining the GasLog Partners second quarter 2021 earnings conference call. For your convenience, this webcast and presentation are available on the Investor Relations section of our website www.gaslogmlp.com where a replay will also be available.

[Paul Wogan:]

Thank you, Joe, and good morning or good afternoon to all of you. So please turn to Slide 4 for GasLog Partners second quarter highlights. I'm pleased to report that the Partnership continue to make good operational and commercial progress in the quarter. The fleet performed at approximately 100% availability, despite the ongoing challenges of COVID and the resulting crew change issues. We took advantage of the seasonally slow second quarter to complete the dry docking of three vessels, which unfortunately encountered some delays due to the COVID related issues at the dry-dock facilities. In recent weeks, we signed four new multi-month charters with high quality customers solidifying our financial position. Last week, we released the partnership sustainability report for 2020, detailing progress against our committed ambitions across environmental, social, and governance issues, and we retired another $19 million of debt during the quarter, bringing the total to $55 million during the first six months of the year. Turning to Slide 5, which summarizes our recent chartering activity. The LNG shipping market has been counter-seasonally strong in recent weeks, especially for 6 to 12 month charters. We've taken advantage of the strength, and since mid-June, we have announced four new multi-month time charters all with high quality counterparties and on attractive terms. Together the charters on this slide, increase our charter coverage to 100% for 2021, and 69% for 2022, and represent a combined $17 million of fixed rate EBITDA. With the signing of these new charters, the Partnership's operating overhead and debt service costs, are now covered through at least 2022, further strengthening GasLog Partners financial foundations.

[Achilleas Tasioulas:]

Thank you, Paul. Turning to Slide 10, and the Partnership's financial results for the second quarter. As Paul mentioned earlier, our financial performance in quarter two 2021 was affected by a phase scheduled dry-dockings, as well as increased spot exposure in our fleet compared to the same quarter last year from the exploration of certain initial long-term charters. More specifically, revenues for the second quarter were 70 million, a 17% decline from the second quarter of 2020. The revenue decline year-over-year is primarily due to the dry-docking of the GasLog Greece, GasLog Glasgow, and Methane Rita Andrea all three fleet to have completed within the second quarter where we face certain COVID 19 related delays. Adjusted EBITDA was 45 million while adjusted earnings was $0.10 per unit. Declines in adjusted EBITDA and adjusted earnings per unit were due to lower revenues and higher operating costs related to the three dry-dockings completed in the second quarter. Looking forward, the Partnership's there is two vessel scheduled for dry-docking in the third quarter of 2021. In addition, as Paul discussed earlier, we recently initiated four new charters for our fleet on attractive terms and therefore expect our financial results to improve significantly during the third and fourth quarter of this year. Turning to Slide 11, and the discussion of our operating overheads and financing costs. Our operating expenses for the second quarter averaged $15,734 per vessel per day. Operating expenses include the impact of three dry-dockings of which $1,109 per vessel per day of related costs were expensed as in cash us during the quarter. We also incurred additional expenses related to COVID-19 challenges, which increased the group costs. Our overhead expenses were $2,554 per vessel per day, a significant improvement over 2020. As we look toward the full year, we expect our unit operating expenses to average for the year $14,850 per vessel per day. This number includes costs for the remaining dry-dockings, as well as additional costs due to COVID-19 related factors. We expect our overhead expenses to average $2600 per vessel per day. These guidance follows structural improvements in our overhead costs which we have discussed on previous calls.

[Paul Wogan:]

Thank you, Achilleas. Slide 15 presents LNG demand and supply for Q2 2021. Poten reported LNG demand increased 11% in the second quarter of 2021 relative to Q2 2020 as shown by the left-hand figure. Asian demand was robust for much of the quarter due to a combination of cooling demand and restocking of inventories ahead of the winter. Demand from Latin America was also strong due to lower hydroelectric output increasing the net demand for LNG fueled electricity generation.

[Operator:]

Our first question comes from the line of Chris Wetherbee with Citi.

[James Monigan:]

Good morning, James on for Chris. So I think based on what you said, it seems like you're fairly positive on spot rates throughout the rest of the year, but it also seems like you don't have much leverage to the improvement in spot rates. So, I just wanted to understand a bit more, am I mischaracterizing anything or was the decision more around risk management. Just trying to understand the puts and takes around that?

[Paul Wogan:]

Yes hi, James it's Paul here. I think, we do see a continued strong market. But I think also the charters our customers also saw a continued strong market and there is a, disconnect right now between the forward rates for one year, and the spot rates in the market. Many of the customers were left without shipping last winter, don't want to be in that same position again, especially when we're seeing Henry Hub trading at $4 and JKM for example, trading at $14 that's huge arbitrage opportunities there. So they were willing to pay a premium to take ships for 12 months, which we found attractive. So, whilst we think that there will be a continued strong market, we felt that locking in that premium at this point make good sense for the partnership.

[James Monigan:]

And then also you had commented around, you made a comment around fleet renewal. I just wanted to get an understanding of what that actually look like. So what do you consider basically buying assets that are already under the water, right and you considering new orders possibly maybe investing in the fleet incremental improve, energy efficiency like, what does the fleet renewal, and as well as in the context sort of the broader IMO regulation investing in the fleet, really look like for you, obviously you may not have plans out there, but just what the most likely cases in sort of like what might look the most attractive?

[Paul Wogan:]

Yes, I think that's probably maybe to pass that question, James. I'll take the first one and maybe invite Paulo to take the second one around potential ways to improve the existing fleet, but I do think with the way that we're strengthening the balance sheet. I think with our operational and commercial platform, we do believe that we can be consolidators in this market, especially for spot operating ships. And so, I think we could see fleet renewal through existing ships. At the moment, I don't think we're not looking at GasLog Partners and new buildings, we haven't found the economics of those to be attractive at this point, but that certainly an opportunity for us going forward. And I think, we continue to see strength in the spot market and I spoke about. And if we opportunistically have the opportunity to sell out some of the steam vessels to projects or to companies that have utilization for them. Then we would also look at that. So, I think all of the above in terms of the, the modernization of the fleet from fleet sale and purchase, but maybe Paolo you want to give us a view on what else we can achieve around changes to the fleet.

[Paolo Enoizi:]

Sure thank you, Paul and hi, James. The environmental regulations are being built now. But I think what we see - as we mentioned before, we definitely the steam vessels going in for an important slow steaming as of 2023 onwards, and eventually having to deal with the hurdles of the 2% increase per year. Again slow steaming is probably here to stay even - after 2023. And as you can see from different developments like we are getting to zero coalition for instance, development of net zero fuels are going to be probably the most important game changer together with maybe important developments like fuel cells especially for the TFDE vessels. So it's going to be - is not going to be a silver bullet and I think, the partnership has assets that can actually use these kind of technology as soon as they develop in a cost-efficient way and then from an availability point of view.

[James Monigan:]

Makes sense. And then - one more if you don't mind, just around the share issuance in the quarter just understanding the proceeds and the motivation, any sort of detail beyond what was said previously would be great. And that's all from me?

[Achilleas Tasioulas:]

Thanks I'll take that, it's Achilleas. So, we took the decision to reactivate the ATM in quarter one as a form of insurance, the spot market in the second quarter started off, and we took the view that there remains quite a bit of uncertainty around COVID. So since mid-June, though our cash flow and liquidity profile has improved greatly. So, we don't have an immediate plans to issue more equity. Today, we have struggled liquidity and better visibility, and our focus continues to be on deleveraging.

[Operator:]

Our next question comes from Randy Giveans with Jefferies.

[Chris Robertson:]

This is Chris Robertson on for Randy. Thanks for taking our call.

[Paul Wogan:]

Hi Chris.

[Chris Robertson:]

Hi, so you mentioned of course, the rates and the rates performing counter-seasonally strong. One question around you mentioned Asian demand being up for the cooling season as well as inventory rebuilding. Do you have a sense of, if any of the fall kind of rebuilding period has been pulled forward into the summer? How might that affect the inventory restocking in the fall for the Asian region?

[Paul Wogan:]

Yes, Chris I think - there's not much visibility about the stocks in Asia, as there is in Europe. In Europe, we can get a very good real time view on what's happening there. But it does appear from the information we can pick up that actually the stocks have been slow to build again in both Korea and Japan or I think Japan is getting back to something like as requirement. But also in China, we understand there has been very hot weather there, real pull on electricity demand, and we think there's more restocking needs to be done. So there are two things happening. One, there continues to be a forecast for a colder winter again the normal like we had last winter, and there has been a very hot summer, which is pulling down existing LNG stocks. So I think, it's setting itself up nicely to continue to have a strong LNG commodity market with the pricing and hence a good LNG shipping market.

[Chris Robertson:]

Okay, great. My next question is around the re-charters specifically on the steam turbine vessels. So, obviously the markets open to operating the steam carriers, can you shed some light maybe on kind of the competitiveness or the - maybe the discount of the steam turbine vessel gets compared to the others? And can you quantify just talking about in the future regarding the CCI, and the slow steaming do you have a sense of the average reduction, and not that you would expect on the steam turbine vessels?

[Paul Wogan:]

Yes, so what's interesting is further steam certain trade, certain ports are restricted and need sort of size that the steam turbines have, and the advantage we have with the steam turbines in the partnership is - they are basically the most modern and most efficient ships in that trade. So when we were able to put that ship on charter. It was basically only around $10,000 a day lower than we were seeing for TFDE vessels at that point and a very nice strong rate. So some of yes, there are definitely opportunities where if you understand the trade. You can do well with the steam ships, and I think that that certainly continues. In terms of the effect of the regulations, I'll again pass that back to Paolo, I think he is probably better been able to answer that question than me. Paolo?

[Paolo Enoizi:]

Sure. Chris, I think you spotted it well. The first hurdles were the slow speeding will be executed will be on the achievement or let's say acquiring the possibility to operate after 2023. And difficult to say exactly what the impact will be for steam vessels because you know size and type of plans are different, but I would say that you can probably expect that vessels that were at capacity to speed up to something around 20 or 99. We'll find themselves having to slow down to an equivalent of two, three months below their threshold. And I think enough to see and probably a growing demand on the vessel multiplier from especially from the previous month of the year. And then that's only for EEXI, for the CII. It's a continuous improvement cycle. Slow speed will be there for not only for the steam vessels, but for every vessel that will want to achieve emission reduction. In addition, as we mentioned with other update on technologies or alternative fuels.

[Chris Robertson:]

Right okay, last question for us has there been any additional costs on changing the corporate structure or possible consolidation?

[Paul Wogan:]

I think, we reported a couple of quarters there. Chris, we've taken a look at the corporate structure, and that the strategic opportunities for GasLog Partners, and concluded that the best way to maximize value for the unit-holders at this point was to continue to operate as a standalone company. We continue to see optionality continues in MLP. Right now the MLP market is not there, but that doesn't mean that that will continue forever. And I think, what's interesting is having taken that view and having set out a strategy of how we want to develop the company since that point. We've probably doubled - the share price is probably doubled. So far, I think that strategy is working well, and we continue to look at how we can continue to make GasLog Partners thrive as a standalone company, and continue to grow as a standalone company.

[Operator:]

. Our next question comes from Chris Tsung with Webber Research.

[Chris Tsung:]

Hi, Paul, Achilleas and Paolo wanted to - earlier I think someone mentioned about the ATM program, and I may have missed the answer, but what was the you said there are proceeds around 10 million that you guys are able to raise?

[Achilleas Tasioulas:]

Well, we haven't used them yet, they are on our balance sheet. And so as I said it was a problem of insurance, and we have been quite successful in the past, where is our liquidity today. We don't have any intention and immediate plans to continue using this program. I think, I believe that we continue our strategy to focus on our deleveraging, reducing breakevens, and improving our cash flows. So we don't know how the future will develop, we have seen a lot of volatility in the past. So today, we are in a good place. I believe in terms of...

[Chris Tsung:]

And just another quick one for one for the Methane Heather Sally that rate is fixed rate, it's not floating?

[Paul Wogan:]

Yes, it's fixed.

[Operator:]

I'm showing no further questions in queue at this time, I'd like to turn the call back to Paul Wogan for closing remarks.

[Paul Wogan:]

Thank you very much, Liz. Well, thank you everybody on today's call for listening. Thank you for your continued interest in GasLog Partners. We certainly appreciate it. And I know that Paolo and Achilleas, look forward to speaking to you in the next quarter. In the meantime, if you've got any questions, please contact the Investor Relations team, and have a good rest of the day. Thank you.

[Operator:]

Ladies and gentlemen, this concludes today's conference call. Thank you for participating, you may now disconnect.